My friends who have one love them. I think that there was some small issues with the early 4.0 engines, but I think that they are all worked out right now.
Here's a neat article on the towing capacity (from a boating mag) of the X5:
http://www.boatingmag.com/features/print_features.html?FeatureID=33
BMW NA also states that the towing capacity is:
What is the towing capacity of the X5 3.0i?
The towing capacity is 5,000 pounds. A towing hitch receiver is planned as an authorized X5 SAV center-installed option.
Also see here:
http://www.bmwusa.com/site_layout/models/0164/0164_x5faq.htm
I think that this would make an excellent towing vehicle. I can't help but think though that bigger is indeed better here, and that a Suburban wouldn't be best for the price. Although the interior of the X5 truly is much nicer than the Suburban. I guess it's all just what you are looking for...
-Wayne